About a third of the estimated total of EUR 80 bn in outstanding Dutch bank loans to the commercial real estate sector in the Netherlands is due for refinancing between now and end-2013 at a time when property values are falling, according to a sample study by the Dutch central bank (DNB).
About a third of the estimated total of EUR 80 bn in outstanding Dutch bank loans to the commercial real estate sector in the Netherlands is due for refinancing between now and end-2013 at a time when property values are falling, according to a sample study by the Dutch central bank (DNB).
The report said that about half of the outstanding loans run until 2015 or later. In addition, the bank found that about a quarter or EUR 20 bn of property-related loans have loan-to-value ratios of more than 100%. This is a striking finding, DNB said, as some of the valuations are outdated and do not reflect the latest market developments.
The central bank warned that even with longer term loans it is important that the valuation of the collateral is correct and that losses on loans due to deteriorating market conditions are recognised. Lenders must strive to avoid the book value of real estate deviating from the fair value over an extended period of time, the bank said.
DNB and financial markets regulator AFM launched the study to get a clear picture of the commercial real estate portfolios of banks, insurers and pension funds. Part of the analysis involved examining the risk profile of commercial property exposures and the valuations of the underlying assets.
Initial findings indicate that the size of the real estate loans and the risk profiles of the banks' real estate portfolios differ significantly. In the current environment of low interest rates and high economic uncertainty, banks risk postponing the crystallisation of their loan losses to a future date, DNB noted.
